Field Operations Handbook — Chapter 12

CHAPTER 12 TABLE OF CONTENTS
Chapter 12
ENTERPRISE COVERAGE – FLSA
Source: FOH Modernization revision 680, published 03/31/2016. Substantive revisions made after
03/31/2016 are noted at the end of affected provisions below. Historical information on revisions
published prior to 03/31/2016 can be found at the link beside this chapter at
www.dol.gov/whd/foh.

Table of Contents

12a THE ENTERPRISE: SECTION 3(r)
12a00 Statutory definition and interpretive bulletin.
12a01 Common ownership.
12a02 Country and town clubs.
12a03 Fraternal orders.
12a04 Golf facilities at country clubs operated by professionals.
12a05 Franchise agreements.
12a06 Banking enterprises.
12b SECTION 3(s): GENERAL
12b00 Statutory provisions.
12b01 Enterprise employee test.
12b02 Application of amended section 3(s) to mixed or hybrid enterprises.
12b03 “Goods or materials” under section 3(s).
12b04 Excise taxes.
12b05 “Sales” for purposes of section 3(s) annual gross volume tests.
12c ENTERPRISES UNDER SECTION 3(s)(1)
12c00 Statutory provisions.
12c01 Excise taxes.
12c02 “Business done” defined.
12c03 Architectural and consulting engineering firms.
12d RETAIL AND SERVICE ENTERPRISES: SECTION 3(s)(2)
12d00 Statutory provisions.
12d01 Effect of changes in the annual dollar volume on section 3(s)(2) enterprises.
12d02 Application of child labor to retail and service enterprises under amended
section 3(s).
12d03 Gasoline service station enterprises under section 3(s)(2).
12e LAUNDRY AND CLEANING ENTERPRISES: SECTION 3(s)(3)
12e00 Statutory provisions.

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12e01 Establishments whose activities are included in section 3(s)(3) enterprises.
12e02 Shoe repair shops.
12e03 Laundry operations by hotels, motels, or restaurants.
12e04 Diaper services.
12f CONSTRUCTION ENTERPRISES: SECTION 3(s)(4)
12f00 Statutory provisions.
12f01 Painting, sandblasting, and tuckpointing.
12f02 Installation as a construction activity.
12f03 Roofing, guttering, and spouting.
12f04 Water well drilling.
12f05 Installation of draperies.
12f06 Landscaping as a construction activity.
12f07 Floor covering firms.
12f08 Architectural and consulting engineering firms.
12g HOSPITALS AND RELATED INSTITUTIONS, AND EDUCATIONAL
INSTITUTIONS: SECTION 3(s)(5)
12g00 Statutory provisions.
12g01 Hospital defined.
12g02 Institutions primarily engaged in the care of the sick, the aged, the mentally ill,
or individuals with disabilities residing on the premises defined.
12g03 Preschools defined.
12g04

Elementary school defined.
12g05 Secondary school defined.
12g06 Veterinary hospitals.
12g07 Head Start programs.
12g08 University and college employees: coverage.
12g09 University and college fraternity and sorority house: coverage.
12g10 Barber colleges and beauty schools.
12g11 Institutions of higher education.
12g12 Institutions for the residential care of emotionally disturbed persons.
12g13 Driving schools.
12g14 Community living centers and halfway houses for individuals with intellectual or
developmental disabilities.
12g15 “Care” of the aged and infirm.
12g16 Day care homes: family owned and operated.
12g17 Maternity homes for unwed mothers.
12g18 Institutions for neglected and dependent children.
12a THE ENTERPRISE: SECTION 3(r)
12a00 Statutory definition and interpretative bulletin.
(a) The Fair Labor Standards Act (FLSA or Act) s ection 3(r) defines the “enterprise,” which is
the business unit tested for coverage under section 3(s). Interpretative bulletin (IB) cited at
29 CFR 779.200 through 779.235 contains the official Wage and Hour (WH), or the Wage

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Hour Division (WHD), interpretations regarding the principles which determine the activities
which are included within an enterprise for purposes of the Act.
(b) Effective 07/01/1972, the Education Amendments of 1972 amended section 3(r)(2) to
include preschools within the coverage of the Act. Section 3(r)(2)(A) as amended reads as
follows:
“[I] n connection with the operation of a hospital, an institution primarily engaged in the care
of the sick, the aged, the mentally ill or defective who reside on the premises of such
institution, a school for mentally or physically handicapped or gifted children, a preschool,
elementary or secondary school, or an institution of higher education (regardless of whether
or not such hospital, institution or school is public or private or operated for profit or not for
profit)...”
(c) Effective 05/01/1974, the 1974 Amendments amended section 3(r) to include all public
agencies within coverage of the Act. Section 3(r)(2)(c) of the amended Act reads as follows:
“[I] n connection with the activities of a public agency...”
12a01 Common ownership.
(a) Section 3(r) does not require unified operation if there is common control. Further, common
ownership may in certain situations be sufficient to establish the common control required by
the Act (see 29 CFR 779.215 and 29 CFR 779.222). It does not necessarily follow, however,
that the activities which are thus commonly controlled are related and performed through
such common control for a common business purpose so as to bring them all within a single
enterprise. A determination as to whether or not these tests are met requires that the total
situation be considered and that each of the tests be viewed realistically in the context of the
others rather than solely in isolation.
(b) While the facts in each case will be determinative of whether the tests of section 3(r) are met,
the following excerpts from recent opinions will serve to illustrate the application of the
principles set out in (a) above in situations where common ownership was a factor to be
considered.
(1) A parent corporation, characterized as a holding company or finance and investment
group, owns and controls numerous subsidiary corporations. The latter are engaged,
respectively, in such diversified activities as retail hardware, animal feed
manufacture, building management, mortgage loans, steel container manufacture,
and so on. The opinion stated, “[a] holding corporation may be organized and
operated for investment purposes and the facts may show in a particular case that the
activities of its operating subsidiaries are not actually related activities performed
through common control for a common business purpose but are separately
performed for different corporate purposes contained in the separate corporate
charters. A different situation would be presented, of course, if it appeared that the
holding company, under authority of its charter, was in fact performing with its
subsidiaries through common control a combination of related activities in which the
various corporations are engaged, and that such activities were all related to, and
performed for, a unitary business purpose for which the holding company was
formed and which is common to all such activities.”

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(2) Two brothers live, respectively, in Cities A and B. They have for several years
owned a retail grocery supermarket, as equal partners. This supermarket is operated
by a manager who is in active charge of the store. One of the brothers individually
purchased an operating grocery store in another town. This store is operated by a
full-time manager who makes daily reports to the owner brother. He makes no
reports to the other brother. The operation of the two stores is not unified in any
way. An issue was raised as to whether the activities of the two stores are related
activities performed for a common business purpose. The opinion stated, “[t]he
activities in question are related in kind, since they are those of retail stores. The
question remains, however, as to whether they are, within the meaning of Sec 3(r),
related activities performed through common control for a common business
purpose. It is true, as stated in IB 779.212, that the term ‘common business purpose’
as used in Sec 3(r) does not have a narrow concept and is not intended to be limited
to a single business establishment or a single type of business. But where, as here,
there are related activities having no functional interdependence and they are
separately conducted to serve the business purpose of the partnership on the one
hand and the business purpose of one brother individually on the other, we are not
prepared to say that the requirement of performance ‘through common control’ of
‘related activities’ for a ‘common business purpose’ is sufficiently met.”
12a02 Country and town clubs.
(a) Country and town clubs, even though nonprofit organizations, which are organized and
operated exclusively by and for the pleasure and recreational purposes of a select group of
persons specially selected for membership (or their guests), are considered to be operated for
a “business purpose” within the meaning of section 3(r). There is no exclusion in the Act for
pleasure or recreational clubs and the activities of such clubs do not fall within the
“nonprofit educational, religious and eleemosynary” activities set forth in 29 CFR 779.214.
The fact that a membership organization is formed for the purpose of providing facilities or
services to its members only does not remove it from the sphere of business. See 29 CFR
779.317 and FOH 25j06.
(b) Included in the annual dollar volume (ADV) of such a club enterprise are initiation fees
which are paid only once, direct charges for use of club facilities which includes charges for
food and beverage, athletic or sporting rental fees, lodging and valet charges, membership
dues and assessments paid as a condition of continued membership, and fees paid by
members to club professionals for lessons (whether or not accounted for to the club).
12a03 Fraternal orders.
(a) Like social or recreational clubs, the activities of a national fraternal order and its local
lodges usually do not fall within the nonprofit educational, religious, or charitable activities
set forth in 29 CFR 779.214. Generally, such orders are considered to be operated for a
“business purpose” within the meaning of section 3(r). The ADV of a fraternal order
includes gross receipts from membership fees and any insurance business or other
commercial-type ventures since such sums are generated for a “business purpose.”
(b) However, for purposes of determining enterprise coverage, a national fraternal order and its
local lodges constitute a single enterprise under the Act only if the activities are performed
through unified operations or common control for a common business purpose. Where a

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local lodge operates as a service and/or social club and the national order has little or no
control over its day-to-day operations and also has no interaction with the local lodge
regarding activities such as insurance programs or other business ventures, there would be no
single enterprise. In such cases, each lodge must be tested separately for purposes of
determining enterprise coverage.
12a04 Golf facilities at country clubs operated by professionals.
(a) Where the golf facilities operated by a professional at a country club are held out as a place
where goods and services can be obtained to meet more completely and conveniently the
needs and desires of the club’s members it expects to service, it would be unrealistic to
regard the activities of such facilities as functionally separated from those of the country club
as a whole, for purposes of enterprise coverage. Rather, the relationship of the business
activities in providing goods and services to the club’s members is functionally close and
immediately connected with a single business purpose common to the golf facilities and the
country club. The Act’s definition of “enterprise” contemplates that the activities of “one or
more corporate or other organizational units” may be joined in a single enterprise meeting
the statutory tests. The effect of the agreement between the country club and the golf
professional is to bring about the performance through unified operations of the activities
described so that they serve a common business purpose, thus reflecting a situation much like
that of companies operating leased departments in stores, which clearly are contemplated by
the Act as included in the store enterprise. Therefore, WH would consider that the activities
so joined form a single enterprise as defined in section 3(r) of the Act. See FOH 12a02(b).
(b) These golf professionals are not considered independent contractors of the kind referred to in
section 3(r) as performing related activities for the enterprise, as distinguished from these
performing such activities as participants in the enterprise. The term “independent
contractor” as used in section 3(r) for the purpose of exclusion from the term “enterprise”
has reference to an independent business which performs services for other businesses as an
established part of its own business operations, and which deals in the ordinary course of its
own operations with the enterprise for which it performs services. The exclusion does not
extend to the performance of any related activities which, in economic reality, are integral
parts of the operation of the enterprise and actually performed through unified operation or
under common control with its other related activities for its common business purpose. Not
only are such activities not excluded from the enterprise, but the employees of the golf
professional would be covered under enterprise coverage to the same extent as other
employees of the country club.
12a05 Franchise agreements.
(a) 29 CFR 779.226 through 779.232 discuss franchise agreements. The following agreement,
involving an employment agency, is a further example of a situation where a single enterprise
was found to exist:
(1) The agreement includes an announcement of the intention to form a national chain of
such businesses as are conducted by the franchisor and by means of the same trade
name, forms, training manuals and distinguishing characteristics (as established by
the franchisor) to present a united front and to secure public good will and encourage
the use of the franchisor’s service on a national basis.

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(2) The franchisee is bound to observe strictly the rules of operation established by the
franchisor (who is free to change them at anytime) and to file quarterly a statement
of operation and whatever other reports the franchisor may require.
(3) The franchisor prescribes, by means of a uniform form, the contract which the
franchisee shall make with his employees and his clients and the fee to be charged
the latter. Advertising presents the franchisor and franchisee as one to the public.
Franchisee is barred by the a franchise agreement from entering into the same
business for himself or with other firms providing the service for 3 years and his
employees for six months after their service ends.
(4) In addition to the fee paid for the franchise, a uniform percentage of gross receipts is
remitted monthly to the franchisor who has access at all times to the books, papers,
and records.
(5) The franchisor has power to enforce the arrangements for its participation and
supervision through its right to terminate the franchise if any term of agreement is
violated. In the event of a sale of the controlling interest, the franchisor receives a
percentage of the sale price to defray costs in training and assistance for the new
management.
(6) All job orders with a starting salary of $500.00 or more per month must be sent by
the franchisee to the franchisor who processes them and distributes them to all
franchise offices. If another office succeeds in placing an applicant in the job the fee
is split 50-50 between the two franchisee offices.
(7) The franchisor furnishes roving managers and trouble shooters where needed.
12a06 Banking enterprises.
(a) In most cases, an enterprise engaged in banking is limited by law to activities which are
related to banking and to purposes of a bank. This does not mean, however, that the only
activities within a banking enterprise are those which constitute banking in its most narrow
sense. Included in the enterprise of a bank, for example, where conducted under unified
operation or common control for a common business purpose, would be those real estate
operations incidental to a bank’s lending money and providing housing for the conduct of its
business. Thus, the operation of the bank building or other buildings acquired as an incident
to its banking operation, even though such buildings are occupied by tenants other than the
bank, would be within the banking enterprise. The operation by the bank itself or a
subsidiary corporation of a parking lot or garage in conjunction with such a building for the
purpose of providing parking accommodations for customers of the bank and the building
tenants would likewise be included. See 29 CFR 779.206(b).
12b SECTION 3(s): GENERAL
12b00 Statutory provisions.
(a) Section 3(s) of the Act as amended in 1974 defines the term “enterprise engaged in
commerce or in the production of goods for commerce” as “an enterprise which has
employees engaged in commerce or in the production of goods for commerce, or employees

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handling, selling, or otherwise working on goods or materials that have been moved in or
produced for commerce by any person....” The Act further specifies that, “[a]ny
establishment which has as its only regular employees the owner thereof or the parent,
spouse, child or other member of the immediate family of such owner shall not be considered
to be an enterprise engaged in commerce or in the production of goods for commerce or a
part of such an enterprise, and the sales of such establishment shall not be included for the
purpose of determining the annual gross volume (AGV) of sales of any enterprise for the
purpose of this subsection.”
(b) Pending issuance of a revised coverage bulletin, 29 CFR 779.240 through 779.243 continue
as valid interpretations of the phrase in section 3(s): “...or employees handling, selling, or
otherwise working on goods or materials that have been moved in or produced for commerce
by any person....” The reference in section 3(s) as amended in 1974 to enterprises having
“employees engaged in commerce or in the production of goods for commerce,” as in the
case of the prior reference in the Act as amended in 1961 to enterprises in the activities of
which “employees are so engaged,” simply means that the employment of employees
individually covered in the traditional sense will also constitute a basis for determining that
the enterprise itself is engaged in “commerce or the production of goods for commerce.”
The usual tests for such individual coverage apply.
(c) The language of section 3(s) of the 1966 Amendments, “...including employees handling,
selling, or otherwise working on goods...” was changed in the 1974 Amendments to “...or
employees handling, selling or otherwise working on goods or materials....” By changing
the word “including” to “or,” Congress indicated its intention to reflect more clearly that this
is an additional basis of coverage. The 1974 Amendments also added the words “or
materials” to make clear the congressional intent to include within this additional basis of
coverage the handling of goods consumed in the employer’s business, e.g., the soap used by
a laundry.
(d)
(1) The 1977 amendments established a new section 3(s)(2) for coverage of enterprises
comprised exclusively of one or more retail or service establishments and whose
AGV of sales or business done (exclusive of the usual excise taxes) is not less than:
• $275,000.00 effective 07/01/1978
• $325,000.00 effective 07/01/1980
• $362,500.00 effective 01/01/1982
(2) Section 3(s) was further amended in 1977 to require that those retail or service
enterprises which were subject to section 6(a)(1) on 06/30/1978, and which were
removed from coverage under section 3(s)(2) because the AGV is less than the sales
volume tests, must (if the AGV does not fall below $250,00.00) pay its employees
not less than the minimum wage in effect on the day before coverage was lost. Such
newly uncovered retail or service enterprises are required to pay overtime.
12b01 Enterprise employee test.

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(a) In order for all employees of an enterprise to be covered on an enterprise basis under
amended section 3(s), at least some of the employees employed in the activities which
constitute the enterprise must be engaged in commerce or in producing goods for commerce,
or handling, selling, or otherwise working on goods or materials that have been moved in or
produced for commerce by any person. Thus, where the enterprise has some employees so
engaged, it is not necessary that two or more employees in each establishment be
individually covered. The requirement is that the enterprise has some employees who are
individually covered or engaged in handling, selling, or otherwise working on goods or
materials that have been moved in or produced for commerce by any person. Although two
or more employees so engaged may be sufficient to satisfy this requirement, it is important to
establish, if possible, that the number of such employees is substantial or that it represents a
significant portion of the employees in the enterprise.
(b) It is not necessary that the enterprise have two or more employees engaged in the named
activities every week since this test as with other requirements for enterprise coverage under
section 3(s) is applied on an annual basis. Thus, this requirement will be met if such
employees are engaged in the named activities on a regular and recurrent basis. The
requirement will not be met, however, where the enterprise has employees engaged only in
an insubstantial amount of the named activities on isolated or sporadic occasions.
(c) It is not necessary that the employees engaged in the activities described in section 3(s) be
nonexempt. Thus, for example, the test will be met where one or more of the employees is
exempt from section 6 or 7 so long as they are engaged in the named activities. Likewise, so
long as the enterprise “has” such employees employed in its activities, it is not necessary that
such employees perform their duties in an establishment of the enterprise.
12b02 Application of amended section 3(s) to mixed or hybrid enterprises.
(a) A single enterprise within the meaning of section 3(r) may in some cases be engaged in
various activities which, although related and for a common business purpose, so differ in
character and function as to constitute a mixed or hybrid enterprise and thus involve the
possible application of more than one of the tests under section 3(s). For example, a
manufacturing enterprise may also engage in construction. In such situations, the application
of the test of section 3(s) shall be made as follows:
(1) If the hybrid enterprise consists only of a combination of activities which are named
in sections 3(s)(3) through 3(s)(5) as activities of the enterprise therein described
(with respect to which there is no ADV test), all employees employed in the hybrid
enterprise shall be considered covered on an enterprise basis under section 3(s).
(2) If the hybrid enterprise consists of some combination of activities named as those in
which enterprises covered under sections 3(s)(3) through 3(s)(5) are engaged,
together with other activities not so named, the employees employed in the hybrid
enterprise shall be considered covered on an enterprise basis under section 3(s), if
the ADV test of section 3(s)(1) is met by the hybrid enterprise.
(3) In the case of any hybrid enterprise consisting of a combination of activities named
as those in which enterprises covered under sections 3(s)(3) through 3(s)(5) are
engaged, together with other activities not so named, whose ADV is less than
$250,000.00 exclusive of the specified taxes, the facts shall be developed and the

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matter submitted to the regional solicitor (RSOL) for opinion with respect to
coverage of the employees employed in the enterprise in activities not named in
sections 3(s)(3) through 3(s)(5) as activities of the enterprises covered thereby. In
any such case, however, enterprise coverage extends at least to those employees
employed in the hybrid enterprise in activities named in sections 3(s)(3) through
3(s)(5) as activities of the enterprises therein described.
12b03 “Goods or materials” under section 3(s).
Employees will be considered to be handling, selling, or otherwise working on “goods or
materials” that have been moved in or produced for commerce by any person within the
meaning of section 3(s), if what they are handling, selling, or working on constitutes “goods
or materials” which have been so moved or produced. “Goods” are defined in section 3(i) of
the Act. The fact that the interstate movement of the goods or materials handled or worked
on by the employees does not begin until after, or has ended before, their work is performed
can provide no basis for concluding that their activities do not relate to “goods or materials”
within the meaning of section 3(s). Congress has specifically recognized that demand for a
product affects interstate inflow of “goods or materials” quite as surely as production for
commerce affects outflow. Thus the language “goods or materials,” as used in section 3(s),
includes trucks, equipment, replacement parts, supplies, stock-in-trade, finished or raw
materials, and other “goods or materials” that have been moved in or produced for
commerce.
12b04 Excise taxes.
(a) See 29 CFR 779.261 through 779.264. The extent to which state excise taxes on tobacco are
levied at the retail level depends upon the law of the particular state. In cases where
enterprise coverage hinges on the question of state excise taxes on tobacco, all the facts
regarding such taxes shall be submitted through channels to the RSOL for an opinion.
(b) The price of auto license plates does not represent a separately stated tax imposed at the
retail level for the use of highways. Thus, no part of the sale price of auto license plates can
qualify as excise taxes levied at the retail level.
12b05 “Sales” for purposes of section 3(s) annual gross volume test.
(a) The definition of a “sale” in section 3(k) and the discussion in 29 CFR 779.259 of income
which is included in the AGV of sales for purposes of sections 3(s)(1) and (2) will in most
cases provide sufficient guidance to determine whether the AGV tests of section 3(s) are met.
In some cases, however, it may not be possible to determine on the basis of current
interpretative material whether certain income or transactions are considered as “sales” (or
“business”) for purposes of section 3(s). In such cases, and where enterprise coverage hinges
on the question, all the facts regarding such income and transactions shall be submitted
through channels to the RSOL for an opinion.
(b) The interpretations set forth below are specific determinations regarding certain “sales” (or
“business”) of particular establishments and industries. When referring to these
determinations it must be kept in mind that the listings do not include all “sales” of the
named establishments and industries.

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(1) Insurance companies
The total premium income received from all policies in a given year constitute
“sales” and are included in that year’s AGV of sales without regard to the year in
which the policy was originally sold.
(2) Banks and financial institutions
Interest from loans and stock dividends are included in the AGV of sales.
(3) Automobile license bureaus or tag agencies
The gross price of auto license plates sold by privately operated auto tag agencies or
license bureaus is included in the ADV. See FOH 12b04(b) and FOH 21ca07.
(4) Real estate, financial, and property management firms
The total rental receipts received by real estate, financial, and property management
firms from buildings which they own are included in the AGV of sales for purposes
of section 3(s)(1). With respect to properties which such firms manage but do not
own, only the gross fee or gross commission received for services rendered would be
included in the AGV of sales. In connection with other related activities, such as the
sale of property and property insurance, the annual sales volume is measured by
gross receipts and not by commission payments.
12c ENTERPRISES UNDER SECTION 3(s)(1)
12c00 Statutory provisions.
Section 3(s)(1) of the Act brings within coverage any employee employed in an enterprise
whose AGV of sales made or business done is not less than $250,000 (exclusive of excise
taxes at the retail level which are separately stated).
12c01 Excise taxes.
For purposes of sections 3(s)(1) and (2), excise taxes, if any, levied by United States (U.S.),
state, or local governments will be excluded in computing the ADV of sales made or
business done provided they are levied at the retail level and separately stated. See 29 CFR
779.261 through 779.264 and FOH 12b04.
12c02 “Business done” defined.
(a) The 1966 Amendments added the phrase “or business done” to the term “annual gross
volume of sales made” in section 3(s)(1) to reflect more clearly the economic test of business
size previously expressed in the Act in terms of “annual gross volume of sales.” It is
intended by this test to measure the size of an enterprise for purposes of enterprise coverage
in terms of the ADV in dollars (exclusive of specified taxes) of the business transactions of
the enterprise, regardless of whether such transactions are “sales” in a technical sense.
Based on language contained in the Congressional Reports, the measure is intended to be
applied to business transactions with the customers of the enterprise, or with the persons who
purchase property or services of any kind through transactions with the enterprise, in terms

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of the gross price they pay for whatever they obtain as a result of the transaction; no intent
appears to measure “business done” by adding to such amounts the sums paid out by the
enterprise as business expenses. For example, gross dollar volume from “business done”
will include the gross amounts paid by the tenants or users as consideration for the leasing or
rental of property to them by the enterprise. On the other hand, expenditures made by the
enterprise such as rental payments, mortgage payments, interest payments on loans, and
accounts payable will be excluded in computing gross volume of sales made and business
done.
(b) In applying section 3(s)(1), the ADV of an enterprise is deemed to include the gross volume
of the “sales” which it makes, as defined in section 3(k) of the Act (see 29 CFR 779.259),
and/or the gross volume of its “business done” as explained in (a) above; that is, the gross
dollar volume of any other business activity in which the enterprise engaged which can
similarly be measured on a dollar basis.
12c03 Architectural and consulting engineering firms.
Independent architectural or consulting engineering firms which provide such architectural
and engineering services to others as consulting and designing, developing plans and
specifications, surveying in the field, and providing personnel at construction job sites to see
that the work is carried out in accordance with the plans and specifications are considered to
be engaged in the business of providing such services rather than in “the business of
construction or reconstruction, or both” within the meaning of section 3(s)(3). Thus, such
firms are tested for purposes of enterprise coverage under section 3(s)(1).
12d RETAIL AND SERVICE ENTERPRISES: SECTION 3(s)(2)
12d00 Statutory provisions.
(a) The 1977 Amendments amended section 3(s) effective 01/01/1978, to include a new section
3(s)(2). Section 3(s)(1) was amended by adding the following after “and begin February 1,
1969, is an enterprise”:
“other than an enterprise which is comprised exclusively of retail or service establishments
and which is described in paragraph (2)...”
Section 3(s)(2) now reads:
“is an enterprise which is comprised exclusively of one or more retail or service
establishments, as defined in section 13(a)(2), and whose annual gross volume of sales made
or business done is not less than $250,000.00 (exclusive of excise taxes at the retail level
which are separately stated), beginning July 1, 1978, whose annual gross volume of sales
made or business done is not less than $275,000.00 (exclusive of excise taxes at the retail
level which are separately stated), beginning July 1, 1980, whose annual gross volume of
sales made or business done is not less than $325,000.00 (exclusive of excise taxes at the
retail level which are separately stated), and after December 31, 1981, whose annual gross
volume of sales made or business done is not less than $362,500.00 (exclusive of excise
taxes at the retail level which are separately stated);”

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(b) Section 3(s) was further amended by adding the following “grandfather clause” to the end of
the section:
“Notwithstanding paragraph (2), an enterprise which is comprised of one or more retail or
service establishments, which on June 30, 1978, was subject to section 6(a)(1), and which
because of a change in the dollar volume standard in such paragraph prescribed by the Fair
Labor Standards Amendments of 1977 is not subject to such section, shall, if its annual gross
volume of sales made or business done is not less than $250,000 (exclusive of excise taxes at
the retail level which are separately stated), pay its employees not less than the minimum
wage in effect under such section on the day before such change takes effect and shall pay its
employees in accordance with section 7. A violation of the preceding sentence shall be
considered a violation of section 6 or 7 as the case may be.”
(c) The Amendments of 1977 made a number of changes in the FLSA which concern enterprises
comprised exclusively of one or more retail or service establishments. These amendments:
(1) changed the ADV test for coverage under new section 3(s)(2),
(2) increased the minimum wage,
(3) increased the monthly dollar test for tipped employees under section 3(t), and
(4) decreased the tip credit under section 3(m) of the Act.
These changes may be illustrated as follows:

Tip credit
Period ADV test
Minimum
wage
Cash Credit
Tipped
Employee
01/01/1977 – 12/31/1977 $250,000 $2.30 $1.15 $1.15 (50%) $20/month
01/01/1978 – 06/30/1978 $250,000 $2.65 $1.33 $1.32 (50%) $30/month
07/01/1978 – 12/31/1978 $275,000 $2.65 $1.33 $1.32 (50%) $30/month
01/01/1979 – 12/31/1979 $275,000 $2.90 $1.60 $1.30 (45%) $30/month
01/01/1980 – 06/30/1980 $275,000 $3.10 $1.86 $1.24 (40%) $30/month
07/01/1980 – 12/31/1980 $325,000 $3.10 $1.86 $1.24 (40%) $30/month
01/01/1981 – 12/31/1981 $325,000 $3.35 $2.01 $1.34 (40%) $30/month
01/01/1982 – Forward $362,000 $3.35 $2.01 $1.34 (40%) $30/month
(d) Unless otherwise exempt, employees of “grandfathered” retail or service enterprises are
subject to overtime for hours worked in excess of 40 in a workweek.
12d01 Effect of changes in the annual dollar volume on section 3(s)(2) enterprises.

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(a) Enterprises not 3(s)(2)-covered on 06/30/1978
Some effects of changes in the ADV under section 3(s)(2) on coverage of retail or service
enterprises are illustrated below. See FOH 21a01.
(1) A new retail or service enterprise beginning business after 06/30/1978 is not covered
until its ADV reaches the applicable statutory amount contained in section 3(s)(2)
($362,500.00 effective 01/01/1982).
(2) If such an enterprise had an ADV of less than $250,000.00 on 06/30/1978, it was not
a covered section 3(s)(2) enterprise. This lack of coverage under section 3(s)(2)
continues if the enterprise never attains an ADV which would cover it under section
3(s)(2) ($362,500.00 since 01/01/1982).
(3) However, if such an enterprise’s ADV increases so that it equals or exceeds the
$362,500.00 ADV test currently in effect, the enterprise must begin paying minimum
wage and overtime at the time coverage becomes applicable.
(4) If the ADV later falls below $362,500.00, the enterprise would not be covered and
would remain so until the ADV again increases to the $362,500.00 level at which
time the enterprise would again be covered under section 3(s)(2).
(b) Enterprises 3(s)(2)- covered on 06/30/1978
Some effects of changes in the ADV of a section 3(s)(2) enterprise which is “grandfathered”
under section 3(s) are illustrated below:
(1) Enterprise coverage under the grandfather clause at the end of section 3(s) cannot be
asserted unless the enterprise was covered on 06/30/1978. The language of section
3(s) expressly requires that in order to be grandfathered an enterprise must have
been covered on 06/30/1978.
(2) By way of illustration, if, during the period 07/01/1978 to 06/30/1980, a retail
enterprise had an ADV of at least $275,000.00, and its ADV subsequently falls
below $275,000.00 (but remains at least $250,000.00), the minimum wage effective
for that enterprise reverts to $2.65 an hour (the minimum wage in effect on the day
before the statutory ADV increased to $275,000.00). This minimum wage remains
in effect for the enterprise until its ADV falls below $250,000.00, or until its ADV
once again reaches a statutory ADV level which requires payment of a higher
minimum wage. This is illustrated below:
06/30/1977 ADV $250,000 Minimum wage $2.65
09/01/1978 ADV $275,000 Minimum wage $2.65
01/01/1979 ADV $275,000 Minimum wage $2.90
07/01/1980 ADV $250,000 Minimum wage $2.65
03/31/1981 ADV $325,000 Minimum wage $3.35

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03/31/1982 ADV $245,000 Not covered
The enterprise remains removed from coverage until it again reaches the section
3(s)(2) statutory ADV currently in effect:
03/31/1983 ADV $325,000 Not covered
03/31/1984 ADV $362,500 Minimum wage $3.35 beginning 04/01/1984
(3) To further illustrate, if the ADV of a retail or service enterprise (which was covered
on 06/30/1978) was $300,000.00 on 07/01/1980, and the enterprise became non-
covered because of the increase in the statutory standard on that date ($325,000.00),
it would be required to continue to pay a minimum wage of $3.10 per hour until such
time as the ADV of the enterprise met a later statutory level ($325,000.00 from
07/01/1980 to 12/31/1981; $362,500.00 after 12/31/1981). At such time as the ADV
of the enterprise reached the later statutory level, it would be required to pay the
minimum wage in effect at that time ($3.35 per hour since 12/31/1980).
Once its ADV has risen to a later statutory level, the enterprise would be required to
continue to pay the applicable minimum wage until such time as its ADV falls below
that level. Thereafter, it would be required to pay (1) whatever minimum wage was
applicable “on the day before the statutory change took effect,” and (2) proper
overtime. For example, if an enterprise having an ADV of $362,500.00 fell to an
ADV of $300,000.00, its applicable minimum wage would become $3.10 an hour,
which was the statutory minimum wage in effect on 06/30/1980, the day before the
statutory ADV level rose to $325,000.00.
If on the other hand, the ADV of the enterprise falls below $250,000.00, it would
cease to be covered until such time as its ADV rose to at least the current level of
$362,500.00.
(c) Certain special problems which have arisen from the application of the grandfather clause are
as follows:
(1) A hotel or motel enterprise which is grandfathered under section 3(s)(2) cannot pay
overtime based on the old partial overtime exemption formerly contained in section
13(b)(8) notwithstanding the fact that section 13(b)(8) was in effect at the time the
enterprise was grandfathered. Section 3(s) states that a retail or service enterprise
which is grandfathered shall pay its employees in accordance with section 7. There
is no implication that any exemptions which were repealed are to apply currently to
grandfathered enterprises because the exemption may have been applicable on
06/30/1978, or thereafter.
(2) Retail or service enterprises which are grandfathered under section 3(s)(2) cannot
take a tip credit higher than that currently in effect (40 percent).
There is nothing in the legislative history to indicate that the higher tip credits which
were available to employers prior to 01/01/1979 or 01/01/1980 are currently to be
made available to grandfathered enterprises.

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For example, if $3.10 continues to be the minimum wage applicable to a
grandfathered enterprise, the employer would be entitled to a tip credit not to exceed
40 percent of $3.10, that is, $1.24 per hour. Section 3(m), as amended, effective
01/01/1980.
12d02 Application of child labor to retail and service enterprises under amended section 3(s).
For purposes of child labor (CL), enterprise coverage will continue to be asserted with
respect to employees of retail and service enterprises which have minimum wage obligations
as a result of the grandfather clause, but which no longer meet the higher dollar tests of
section 3(s)(2). Although section 3(s) does not expressly provide for the retention of
enterprise coverage with regard to CL for previously covered section 3(s)(2) enterprises,
there is no evidence that Congress intended such coverage to be eliminated.
12d03 Gasoline service station enterprises under section 3(s)(2).
A gasoline service station enterprise comprised exclusively of one or more retail or service
establishments is subject to section 3(s)(2) coverage and must be tested for ADV as any other
retail or service enterprise (see FOH 12d01).
12e LAUNDRY AND CLEANING ENTERPRISES: SECTION 3(s)(3)
12e00 Statutory provisions.
(a) Section 3(s)(3) of the Act brings within coverage employees employed in an enterprise which
“is engaged in laundering, cleaning, or repairing clothing or fabrics.” (There is no ADV test
for such enterprises.)
(b) Since enterprise coverage as defined in section 3(s) of the Act includes “employees handling,
selling, or otherwise working on goods or materials that have been moved in or produced for
commerce by any person,” the requirement that some employees in the enterprise engage in
the named activities will be satisfied, for example, where some employees in the enterprise
handle or work with supplies received from outside the state such as bleaches, soaps, or
packaging materials such as cartons and wrapping paper.
12e01 Establishment whose activities are included in section 3(s)(3) enterprises.
For purposes of section 3(s)(3) the activities performed in or by the following establishments
are considered to be included in an enterprise which is engaged in laundering, cleaning, or
repairing clothing or fabrics:
(1) Central laundry or dry cleaning establishments
(2) Laundry or dry cleaning establishments (generally known in the trade as valet shops
or will-call or pickup and delivery stations) which, receive from and return to their
customers clothing or fabrics for laundering, cleaning, or repairing at a central
laundry or dry cleaning establishment
(3) Coin-operated laundries (laundromats)
(4) Self-service cleaners

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In such cases the possibility of a family owned and operated establishment should
not be overlooked (see FOH 12b00).
12e02 Shoe repair shops.
The activities performed by a shoe repair establishment are not considered to constitute
engagement in “laundering, cleaning, or repairing clothing or fabrics” for purposes of section
3(s)(3).
12e03 Laundry operations by hotels, motels, or restaurants.
(a) Employees of a hotel, motel, or restaurant engaged in performing laundering, cleaning, or
repairing of clothing or fabrics will be covered on an enterprise basis under section 3(s)(3) if
there are in the hotel, motel, or restaurant enterprise employees “engaged in commerce or in
the production of goods for commerce, including employees handling... by any person.”
However, a section 13(a)(2) exemption may still apply to other employees of the hotel,
motel, or restaurant who are not engaged in such laundry operations if the test of that
exemption are met. See FOH 21cL01.
(b) Generally, enterprise coverage under section 3(s)(3) applies to employees of a hotel, motel,
or restaurant who regularly and recurringly perform laundering, cleaning, or repairing of
clothing or fabrics in the laundry or dry cleaning portion of the establishment. Thus, for
example, employees who regularly and recurringly perform the actual laundering work or
who work in a pickup station or in a coin-operated laundry operated by the hotel will be
considered as engaged in laundering for purposes of section 3(s)(3). On the other hand, a
bellhop who merely picks up and returns clothing to be laundered or dry cleaned or a maid
who merely handles linens incident to the making or unmaking of beds would not be
considered as so engaged.
12e04 Diaper services.
The activities of the typical diaper service, i.e., the rental of laundered baby diapers, is
considered the laundering of fabrics for purpose of section 3(s)(3). Its operation is no
different from that of a laundry which specializes in renting laundered uniforms, towels, and
linens.
12f CONSTRUCTION ENTERPRISES: SECTION 3(s)(4)
12f00 Statutory provisions.
Section 3(s)(4) brings within the general coverage of the Act employees employed in an
enterprise which “is engaged in the business of construction or reconstruction or both.”
12f01 Painting, sandblasting, and tuckpointing.
Painting, sandblasting, and tuckpointing are part of the construction industry and are clearly
a construction or reconstruction activity where performed as an integral part of a definite
construction or reconstruction job, such as the renovation, remodeling, rehabilitation, or
reconstruction of existing structures or the construction of new structures. In addition,
contract painting, even though part of the ordinary maintenance of an existing structure, is

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generally regarded as a part of the construction industry when performed by an employer
engaged in the business of painting, and would be considered “construction or
reconstruction” for purposes of section 3(s)(4).
12f02 Installation as a construction activity.
(a) Certain business, such as establishments engaged in the sale of plumbing and heating
equipment, electrical fixtures and supplies, irrigation equipment, and fencing and siding, in
addition to selling goods, also install the goods which are sold. In determining whether such
installation constitutes engagement in “construction or reconstruction” for purposes of
section 3(s)(4), it is necessary to consider the general characteristics of the entire transaction.
At least in situations where one or more of the following conditions are present the
installation will normally be considered as engagement in construction or reconstruction:
(1) The cost of installation is substantial in relation to the sale of the goods.
(2) The installation involves substantial structural changes, extensive labor, planning, or
the use of specialized equipment.
(3) The goods are being installed in conjunction with the construction, renovation,
remodeling, or reconstruction of a home or other structure.
(4) The goods installed are of a specialized type which the general consuming public
does not ordinarily have occasion to use.
(b) By way of example of the principals involved, if the installation requires only minor
carpentry, plumbing, or electrical work (as may be the case where ordinary plumbing
fixtures, or household items such as stoves, garbage disposals, attic fans, or window air
conditioners are being installed or replaced), or where only labor of the type required for the
usual installation of chain link fences around a home or small business establishment is
involved, in the absence of any of the criteria listed in FOH 12f02(a) above, such installation
will not normally be considered as “construction or reconstruction.”
(c) In determining the cost of installation in relation to the sale price of the goods pursuant to
FOH 12f02(a)(1) above and 29 CFR 779.321, the difference between the total price paid by
the purchaser for the installed job and the price charged him for the materials used is the cost
(to the purchaser) of installation.
12f03 Roofing, guttering, and spouting.
The installation, repair, or replacement of roofing, guttering, and spouting in conjunction
with new or existing buildings are considered construction or reconstruction activities within
the meaning of section 3(s)(4).
12f04 Water well drilling.
The drilling of water wells is a construction activity within the meaning of section 3(s)(4).
12f05 Installation of draperies.

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The installation of draperies in new buildings is not considered a construction activity for
purposes of section 3(s)(4).
12f06 Landscaping as a construction activity.
In some sales agreements between builders and individual home buyers, the buyer contracts
for a package arrangement whereby the completed home includes the landscaping. In those
cases where the general builder by contract or agreement subcontracts the landscaping, the
subcontractor is contributing toward the actual construction of the completed home as
contemplated by the sales agreement. In such situations the activities of the landscaper,
including the planting of nursery products, the grading and seeding of lawns, and
construction of retaining walls, are closely identified with building the homes and are
considered to be “construction” for purposes of applying section 3(s)(4).
12f07 Floor covering firms.
(a) The installation of hardwood floors, wall tile, and floor tile is “construction or
reconstruction” for purposes of section 3(s)(4), whether performed in conjunction with
original construction or as a part of a remodeling or repair operation. Additionally, contracts
for relaying or refinishing floors on insurance jobs (such as repair work due to fire or water
damage) would be contracts for “reconstruction” in the ordinary case.
(b) Where such a firm lays carpeting or linoleum (as a contractor or subcontractor) as part of the
construction or reconstruction of a building, the activities may properly be classified as
“construction or reconstruction.” However, the laying of carpeting or linoleum in existing
premises may not be considered “construction or reconstruction” when done merely to meet
a customer’s request for covering or renewing a floor since the actual construction work
involved in such an operation is normally de minimis.
12f08 Architectural and consulting engineering firms.
Separate and independent architectural and consulting engineering firms are tested for
enterprise coverage under section 3(s)(4) only where their own operations, as distinguished
from those of other enterprises engaged directly in construction to which their services
related, constitute engagement in “the business of construction or reconstruction, or both.”
12g HOSPITALS AND RELATED INSTITUTIONS, AND EDUCATIONAL
INSTITUTIONS: SECTION 3(s)(5)
12g00 Statutory provisions.
(a) Section 3(s)(5) brings within the coverage of the Act employees employed in an enterprise
which “is engaged in the operation of a hospital, an institution primarily engaged in the care
of the sick, the aged, or the mentally ill or defective who reside on the premises of such
institution, a school for mentally or physically handicapped or gifted children, an elementary
or secondary school, or an institution of higher education (regardless of whether or not such
hospital, institution, or school is public or private or operated for profit or not for profit).”

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(b) Effective 07/01/1972, the Education Amendments of 1972 amended section 3(s)(5) to
include preschools within the coverage of the Act. Section 3(s)(5) as amended reads as
follows:
“[I] s engaged in the operation of a hospital, an institution primarily engaged in the care of the
sick, the aged, the mentally ill or defective who reside on the premises of such institution, a
school for mentally or physically handicapped or gifted children, a preschool, elementary or
secondary school or an institution of higher education (regardless of whether or not such
hospital, institution, or school is public or private or operated for profit or not for profit)....”
Prior to 07/01/1972, employees of preschools were not covered under section 3(s)(5).
(c) On 06/24/1976, the U.S. Supreme Court in the case of National League of Cities. et al. v.
Usery held that the minimum wage and overtime provisions of the FLSA do not apply to
state and local government employees engaged in activities which are an integral part of
traditional government services. See FOH 59d. The Court expressly found that the
following activities were among those to which these provisions do not apply: “schools,
hospitals, fire prevention, police protection, sanitation, public health, parks and recreation.”
Additionally, there are certain activities clearly reserved for state and local governments
which the Department of Labor (DOL) will regard as no longer subject to minimum wage
and overtime (e.g., the courts, legislatures and other governing bodies, tax assessor’s office).
The Court’s decision does not discuss activities which might be regarded as nontraditional
such as state liquor stores, and utility and transit services. The majority opinion does state
that the minimum wage and overtime provisions could apply to a state’s operation of a
railroad. Questions which cannot be resolved because of uncertainty as to whether the
function is traditional should be developed and referred to the RSOL for an opinion.
(d) The Court’s decision deals only with the minimum wage and overtime provisions of the
FLSA. It is WH’s position that the decision does not affect the application of the equal pay
(EP) (regarding the Equal Pay Act of 1963) and CL provisions of the FLSA or of the Age
Discrimination in Employment Act (ADEA) to employees of state and local governments,
and that the provisions continue to apply.
12g01 Hospital defined.
(a) The FLSA does not define a hospital. However, the term “hospital” refers to those
establishments commonly known as hospitals which primarily engaged in the offering of
medical and surgical services to patients who generally remain at the establishments either
overnight, for several days, or for extended periods. Clinics and dispensaries are not
included within the term “hospital” unless operated by a hospital in the hospital
establishment.
(b) Based on considerations of the standards and findings of other agencies and authoritative
sources, it is the position of WH that any establishment described in (a) above, which meets
any of the following three tests, should be recognized as a hospital for purposes of the FLSA:
(1) Any establishment recognized by the U.S. Department of Health, Education, and
Welfare as a hospital for Medicare.

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(2) Any establishment accredited by the Joint Commission on Accreditation of
Hospitals. This commission is located in Chicago, IL and is composed of
representatives from the American Medical Association, the American Hospital
Association, the American College of Physicians, and the American College of
Surgeons. Its function is to establish standards for hospital operations and to ensure
continued adherence to these standards.
(3) Any establishment which:
a. is primarily engaged in providing, by or under the supervision of physicians,
1. diagnostic services and therapeutic services for medical diagnosis,
treatment, and care of injured, disabled, or sick persons; or
2. rehabilitation services for the rehabilitation of injured, disabled, or
sick persons; or
b. is primarily engaged in providing, by or under the supervision of a physician,
psychiatric services for the diagnosis and treatment of mentally ill persons;
or
c. is primarily engaged in providing, by or under the supervision of a physician,
medical services for the diagnosis and treatment of tuberculosis;
d. and, in addition to meeting one of the above requirements, also satisfies the
following requirements:
1. maintains clinical records on all patients; and
2. has bylaws in effect with respect to its staff of physicians; and
3. has a requirement that every patient must be under the care of a
physician; and
4. provides 24-hour nursing service rendered or supervised by a
registered professional nurse, and has a licensed practical nurse or
registered professional nurse on duty at all times; and
5. in the case of an institution in any state in which state or applicable
local law provides for the licensing of hospitals,
A. is licensed pursuant to such law; or
B. is approved, by the agency of such state or locality
responsible for licensing hospitals, as meeting the standards
established for such licensing.
12g02 Institutions primarily engaged in the care of the sick, the aged, the mentally ill, or
individuals with disabilities residing on the premises defined.

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Such an institution (other than a hospital) is an institution primarily engaged in (i.e., more
than 50 percent of the income is attributable to) providing domiciliary care to individuals
who reside on the premises and who, have a disability or, if suffering from sickness of any
kind, will require only general treatment or observation of a less critical nature than that
provided by a hospital. Such institutions are not limited to nursing homes, whether licensed
or not licensed, but include those institutions generally known as nursing homes, rest homes,
convalescent homes, homes for the elderly, and the like. See FOH 25i and FOH 12g12.
12g03 Preschools defined.
Effective 07/01/1972, a preschool is any enterprise (as defined in sections 3(r) and 3(s) of the
Act) which provides for the care and protection of infants or preschool children outside their
own homes during any portion of a 24-hour day. The term “preschool” includes any
establishment or institution which accepts for enrollment children of preschool age for
purposes of providing custodial, educational, or development services designed to prepare
the children for school in the years before they enter the elementary school grades. This
includes day care centers, nursery schools, and kindergartens. Head Start programs and any
similar facility primarily engaged in the care and protection of preschool children.
12g04 Elementary school defined.
FLSA section 3(v) defines such a school as “a day or residential school which provides
elementary education, as determined under [s]tate law.”
12g05 Secondary school defined.
FLSA section 3(w) defines such a school as “a day or residential school which provides
secondary education, as determined under [s]tate law.”
12g06 Veterinary hospitals.
The word “hospital,” as used in the Act, refers to an institution (see FOH 12f01) for the care
of sick, wounded, infirm, or aged persons. A veterinary hospital for the care of animals is
not considered to be a hospital within the meaning of section 3(s)(5). Consequently,
employees of a veterinary hospital will be covered on an enterprise basis only if the
veterinary hospital meets the tests of sections 3(s)(1) or (2), whichever is applicable (see
FOH 21a01(d)).
12g07 Head Start programs.
Employees of Head Start programs are covered under section 3(s)(5).
12g08 University and college employee: coverage.
(a) The enterprise operating a private institution of higher education normally consists of that
institution’s administrative and academic offices, custodial and maintenance functions and
facilities, physical plant, and real estate. Many universities occupy more than one campus
and many others have a number of separate schools or departments in separate geographical
units. All the constituent elements relating to one or more campuses, schools, or
departments, the operation of which is related and performed through unified operations or

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common control for a common business purpose, would be considered a single enterprise for
purpose of sections 3(r) and 3(s)(5). Insofar as the operation of schools and related
institutions is concerned, the term “common business” encompasses those activities, whether
performed by one or more persons, corporations, or other organizational units, which are
directed to the same objective or objectives in which the enterprise is interested.
(b) Pending interpretations by the courts, WH will take no position as to the application of the
Act to housekeepers, food service employees, or cleaning personnel who work exclusively in
a faculty residence hall or, in the case of a parochial school, in a convent where teaching
sisters live.
12g09 University and college fraternity and sorority house: coverage.
(a) Many universities and colleges have on their campuses fraternity and sorority houses that
provide dormitory and dining hall facilities for students (members). In order to provide these
services such organizations may employ such personnel as house directors or house mothers,
cooks, maids, etc. These employees are generally paid from revenues derived from the
charges to members for items such as room, board, and dues. I n the ordinary case these
organizations are controlled and operated by the national and local chapter organization and
the degree of supervision and control by the educational establishment is likely to be quite
casual and nominal. As a general rule the WHD does not consider the operation of these
fraternity and sorority houses as a part of the college or university enterprise within the
meaning of sections 3(r) and 3(s)(5).
(b) There may be instances where the facts demonstrate that certain activities, such as the
provision of student meals and lodging in the fraternity and sorority houses, are part of the
university enterprise, as could be the case, for example, where the university owns the houses
or exercises a high degree of supervision and control. In such doubtful situations a careful
study of the fraternity or sorority charter provisions and the university rules applicable to
such houses would be essential in making a determination.
(c) While the general rule excludes student meal and lodging activities in fraternity and sorority
houses from enterprises coverage under section 3(s)(5), the possible application of section
3(s)(1) to the fraternity or sorority enterprise should not be overlooked.
12g10 Barber colleges and beauty schools.
Barber colleges and beauty schools are not considered to be “institutions of higher
education” for purposes of section 3(s)(5).
12g11 Institutions of higher education.
(a) Although the term “institutions of higher education” contained in sections 3(r)(1) and 3(s)(5)
is not defined in the FLSA, the ordinary meaning of the phrase is that they are institutions
above the secondary level, such as colleges or universities; junior colleges; professional
schools of engineering, law, library science, social work; etc. Generally, an institution of
higher education is an educational institution which:
(1) admits as regular students only individuals having a certificate of graduation from a
high school or the recognized equivalent of such a certificate; and

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(2) is legally authorized within a state to provide a program of education beyond high
school; and
(3) provides an educational program for which it normally awards a bachelor’s degree,
or provides not less than a 2-year program which is acceptable for full credit toward
such a degree, or offers a 2-year program in engineering, mathematics, or the
physical or biological sciences which is designed to prepare the student to work as a
technician and at a semiprofessional level in engineering, scientific, or other
technological fields which require the understanding and application of basic
engineering, scientific, or mathematical principles or knowledge.
12g12 Institutions for the residential care of emotionally disturbed persons.
For enforcement purposes, a private institution for the residential care of emotionally
disturbed persons would come within the coverage of section 3(s)(5) of the Act if more than
50 percent of its residents have been admitted by a qualified physician, psychiatrist, or
psychologist. For purposes of the 50 percent test, the term “admitted” includes evaluations
of mental or emotional disturbance by a qualified physician, psychiatrist, or psychologist
either subsequent to admission to the institution or preceding admission and being the cause
for referral.
12g13 Driving schools.
Establishments engaged as a business in instructing and teaching motor vehicle driving are
not bona fide educational establishments or institutions for purposes of section 3(s)(5) or 29
CFR 541.215.
12g14 Community living centers and halfway houses for individuals with intellectual or
developmental disabilities.
For enforcement purposes, a private institution for individuals with intellectual or
developmental disabilities, sometimes called a community living center or a halfway house,
would come within the coverage of section 3(s)(5) of the Act if more than 50 percent of its
residents have an intelligence quotient (IQ) of 69 or less as determined on the basis of a valid
test administered by a qualified professional and a reasonable degree of care is being
provided. An IQ of 69 or below is considered intellectually or developmentally disabled.
“Care” may include such services as waking up residents in the morning to see that they get
breakfast in time to leave for work, picking some up at night after work, special counseling,
instruction in money management and health matters, and generally keeping an eye on them
and listening to problems. See FOH 12g02 and FOH 12g12.
12g15 “Care” of the aged and infirm.
(a) Many establishments variously referred to as retirement hotels, retirement apartments, homes
for..., senior citizens retirement homes, and the like provide residences and other services for
older persons. In order to determine whether such an establishment may qualify as an
“institution primarily engaged in the care of the ... aged ...,” one of the key questions is
whether “care” is provided.

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(b) The word “care” as it is used in section 3(s)(5) is subject to a broad interpretation and
encompasses routine custodial services and attention. Institutions which care for the aged,
(as well as other institutions which care for the sick, or for the mentally ill or individuals
with disabilities), can vary from extremely well-serviced establishments to those of a
custodial type of servicing. Where an establishment must take full responsibility of any
nursing home or hospital care a resident requires, this constitutes “care” of the resident.
However, it does not necessarily follow that to be a home for the aged, the establishment
must be a nursing home or otherwise medically oriented. If the aged occupants, in addition
to receiving food, shelter, and laundry, must be closely watched because their senile
condition necessitates their being supervised and guided, even though they receive no
medical attention, they may, depending upon all the facts, be receiving “care” for the aged
within the meaning of section 3(s)(5). See FOH 12g02, FOH 12g12, and FOH 12g14.
(c) On the other hand, some apartment hotels and retirement homes that cater to retirees and
other elderly persons who are completely ambulatory and in reasonably good health are not
considered institutions primarily engaged in the care of the aged who reside on the premises.
Even though such an establishment may furnish certain special services, as for example,
emergency pull bells in the bathroom connected to a public address system in the office and a
registered nurse on duty for an hour each day to aid tenants if they need help in taking
required medication, these services may, depending upon all the facts, be just a part of a
deluxe service furnished by the establishment and such establishments would not be covered
under section 3(s)(5).
12g16 Day care homes: family owned and operated.
Certain day care homes are not covered on an enterprise basis because they are family owned
and operated (see last sentence of section 3(s)). Typically a mother who is already caring for
her own children will care for other parents’ children in her residence without the aid of any
regular employees other than her immediate family. Such residences are distinct
establishments for purposes of the Act and are excluded from enterprise coverage by the last
sentence of section 3(s) notwithstanding that such homes may be in some way affiliated with
a covered enterprise.
12g17 Maternity homes for unwed mothers.
Private nonprofit institutions providing residential care for unwed mothers are not covered
by the enterprise provisions of the FLSA, provided that the maternity home is not operated in
conjunction with a hospital, covered institution, or school within the meaning of sections 3(r)
and 3(s) of the Act. There may be employees covered on an “individual” basis, however.
12g18 Institutions for neglected and dependent children.
Private nonprofit institutions providing care for neglected and dependent children are not
covered by the enterprise provisions of the FLSA, provided that such institution is not
operated in conjunction with a hospital, covered institution, or school within the meaning of
sections 3(r) and 3(s) of the Act. However, there may be employees who are covered on an
“individual” basis.